Investment firms have become the largest new home buyers in the US, a trend that could make homeownership more difficult for average families.
The idea of large investors buying single-family homes for rent is “just in its infancy” in Canada, but it’s worth watching, according to the president of one of the country’s largest real estate firms. Some advocacy groups fear families won’t be able to compete against money managers with billions in assets.
What interest rates go up Y property prices fall In much of North America, wealthy investors like hedge funds, private equity giants, and pension administrators they are looking for stable assets to offset inflation and volatility in stock markets, according to market watchers.
In the first quarter of 2022, investors accounted for a record 28% of US single-family home sales. Harvard Joint Center for Housing Studiescompared to less than 20 percent the previous year.
“Investors bought a larger share of America’s homes than ever before,” said a separate report from the redfin real estate company.
The trend of money managers buying single-family homes for rent is “a new phenomenon” for the Canadian market, said Christopher Alexander, president of ReMax Canada. He thinks the notion could catch on here as it has south of the border, especially given recent price drops.
“The lower you can buy as an investor, the better chance you have of selling high,” Alexander said in an interview.
“They are well capitalized, they are smart and they have the wherewithal to make an impact in the market.”
What middle-class families increasingly struggle to buy homes, analysts say more capital from large companies is expected to enter the Canadian market, putting more pressure on supply and affordability for average people. The lack of hard data on the scale of these investments makes it difficult for policymakers to respond to the emerging trend, affordable housing advocates said.
Lack of Canadian data
The scale of current institutional ownership of Canadian housing is unclear, but analysts believe it is much lower than in the US and generally less of a cause of the rapid increase in house prices that this country has seen the last decade.
The Canadian government does not have clear data on the footprint of large investors in the national real estate market. Neither Statistics Canada nor the Canadian Mortgage Housing Corporation (CMHC), federal agencies that track the sector, were able to say how many houses are owned by investment firms.
“At this time, Statistics Canada does not publish information on institutional investors and the type of residential properties they own,” a spokesperson for the government organization told CBC News by email.
“CMHC does not collect the data it is looking for,” a spokesperson repeated.
Securing purchases from institutional investors is not an easy task, ReMax’s Alexander said, especially since these firms often “don’t put all of their purchases under the same name or register properties to different numbered companies or holding companies.”
“I just don’t know if we’re set up to track a new phenomenon,” he said.
‘The question of not knowing’
The issue is politically sensitive. Few other major real estate firms would comment on investor interest in the Canadian real estate market.
The Canadian Real Estate Association, the trade body that represents brokers, declined to comment. So did Royal LePage, a major brokerage firm. Two other real estate agencies, Century 21 and Keller Williams, did not respond to interview requests.
Getting a clear picture of the scale of institutional investments is the first step in determining how to respond to them, said Jennifer Barrett, a senior planner at the Canadian Urban Institute, a Toronto-based nonprofit.
“I think the question of not knowing, in and of itself, is an interesting piece to explore,” he said in an interview. “The federal government needs to address the financialization of housing.”
While the extent of institutional investment in Canada’s real estate market is unclear, individuals who own more than one property own 29% of residences in BC, 41% in Nova Scotia and 31% in Ontario, according to Statistics Canada figures. released in april. These owners can be family owners who own a couple of rental properties or larger investors who list homes under one name.
The industry denies pushing prices up
Despite the lack of hard data, institutional investors recently hit the headlines in Canada.
Core Development Group, a Toronto-based real estate company, drew anger last year, when it announced plans last year to spend $1 billion buying single-family homes in mid-size Canadian cities. The company did not respond to requests for comment on the status of its investments.
Blackstone, who describes herself as the largest alternative investment companywith billions spent on single-family homes in the US, it opened a real estate office in Toronto in May to expand its $14 billion in Canadian real estate assets.
“We expect to continue to be very active in the Canadian market, particularly in areas such as logistics, high-end creative offices and life sciences offices, studios and multi-family residences,” a company spokesperson told CBC News via email.
“We continue to have no intention of investing in the single-family home market in Canada.”
Blackstone owns approximately 0.02 percent of single-family homes in the US, according to company datarepresenting approximately 80,000 units.
“Given our ownership levels, we have virtually no ability to affect market rental trends,” Blackstone said in a March online question and answer session responding to criticism. “Rents are going up because there is significantly less supply of housing around the world than demand.”
Private equity investors in the US began buying single-family homes after the 2008 subprime mortgage crisis and subsequent recession, said Barrett of the Canadian Urban Institute. But the trend did not reach nearly the same degree in Canada.
Since then, corporate owners have purchased some 350,000 homes, according to testimony heard by the US House financial services committee on June 28 to investigate affordability and private equity challenges.
By 2030, investors could control up to 40 percent of the US rental housing market, according to data cited by PERE, an industry magazine.
In addition to fears that wealthy financiers will compete with ordinary people to buy homes, tenants who rent to big investors have faced a number of problems, said Madeline Bankson, a researcher at the Private Equity Stakeholder Project, an advocacy group with US based
Poor maintenance, broken air conditioners in the sweltering South, lack of trash pickup, mold, exorbitant late fees, and no one to respond when things break are a few. of the problems that tenants of houses owned by large investors have reported to advocates. .
“The model is: increase revenue, decrease costs,” Bankson said.
Fears of a ‘perfect storm’
Unlike the average person who typically requires a mortgage to buy a home, equity investors typically buy with cash, which means they are more protected than individuals from rising interest rates. Blackstone, for example, boasts $941 billion United States under administration.
ReMax’s Christopher Alexander, who closely follows Canada’s market, fears a “perfect storm” could be on the horizon after 2024 as population growth continues and supply chain challenges affect plans. for new construction.
The rise in the US dollar compared to Canada’s currency also makes Canadian homes more attractive to foreign capital investors, Alexander said.
“They see that we have limited supply and that there is no real solution through construction; we can’t keep up and they see a good climate for long-term appreciation,” he said.
“Investors aren’t thinking about raising their families there; it’s much more mathematical and focused on numbers. If you’re buying a house to live in, it’s emotional.”